Nomination and Remuneration of Executives

The Company has adopted a performance-linked remuneration plan for directors (excluding outside directors and directors who are members of the Audit and Supervisory Committee) and executive officers. This plan is designed to improve medium- to long-term business performance, provide incentives for increasing enterprise value and shareholder value, sustainably share economic interest with shareholders, encourage a willingness among directors and executive officers to take on challenges, and ensure transparency and objectivity in the remuneration determination and performance evaluation processes.

Under the plan, remuneration is composed of basic remuneration, which is a set amount, annual incentive remuneration, and medium- to long-term incentive remuneration. Annual incentive remuneration (bonus) is determined by an evaluation of business performance based on the level of achievement of the consolidated ordinary profit target (excluding the impact of inventory valuation gain/loss; 100 billion yen is regarded as 100% achievement), an evaluation of level of achievement of ESG targets, and individual evaluations based on the perspective of management nomination. A performance-linked coefficient based on the Company’s total shareholder return (TSR) relative to the Tokyo Stock Price Index (TOPIX) growth ratio and the consolidated net debt-to-equity ratio (ratio of interest-bearing liabilities) has been established for medium- to long-term incentive remuneration, and incentive remuneration is structured to reflect the results of management efforts.

The remuneration plan is designed so that the ratio of basic remuneration, annual incentive remuneration (assuming 100% achievement of all indicators), and medium- to long-term incentive remuneration (assuming achievement of stock price conditions is 100%) is 4:3:3.

Medium- to long-term incentive remuneration is a share-based remuneration plan using a trust, and this mechanism motivates management to have an awareness of enhancing enterprise value from a long-term perspective, since the value of shares owned by directors and executive officers increases or decreases just like it does for external shareholders.

The Nomination and Remuneration Committee continuously discusses the ideal remuneration plan for the Cosmo Energy Group and its shareholders. To enable further progress toward achieving the “sustainable development” set out in the Group Management Vision amid significant changes in the business environment, the annual incentive plan was revised in fiscal 2022 to add the following evaluation categories. The remuneration ratio for the annual incentive plan for fiscal 2022 is structured so that 80% of the remuneration is linked to consolidated ordinary profit excluding the impact of inventory, 10% is linked to the evaluation of efforts to achieve ESG targets, and 10% is linked to the evaluation of individual performance.

In order to encourage directors and executive officers to work speedily and diligently on the material issues identified in 2021 in promoting sustainable management, an evaluation of their efforts to achieve ESG targets is reflected in their remuneration. Indicators for the evaluation of efforts to achieve ESG targets will continue to be discussed as an important issue in the executive remuneration plan, taking into account the next medium-term management plan from fiscal 2023 and other factors.

Individual directors and executive officers are evaluated based on a performance appraisal and a multi-faceted evaluation conducted from the perspective of management nomination, utilizing the functions of the Company’s Nomination and Remuneration Committee, which deliberates on the nomination and remuneration of executives. The objective is to conduct all-encompassing and comprehensive qualitative evaluations and reflect individual contributions, which do not show up in company-wide performance figures, in remuneration.

In fiscal 2023, the Nomination and Remuneration Committee met ten times and primarily discussed the following agenda items.